ASIC Viewpoint: Regulatory reform and technology

Published by the Australian Financial Markets Association in AFMA Member News, February 2017.

Australians are more engaged with digital technology than ever before. As one of the biggest users of mobile devices, we have some of the highest levels of internet usage globally.

Innovation in financial technology (FinTech) is disrupting traditional business models and changing the landscape of financial services and markets. By using technology to empower consumers and investors to take control of their financial affairs, FinTech is a powerful force of competition with the potential to improve efficiency in markets and financial services.

At ASIC we are committed to supporting innovation in technology that promotes fair and efficient markets. Since we launched our Innovation Hub in 2015, we have seen a surge in requests by FinTech start-ups seeking assistance on how to navigate our regulatory system.

In December 2016 we released a world-first FinTech licensing exemption; allowing eligible businesses to test the viability of innovative financial services and products without holding a licence and incurring a number of regulatory costs. The exemption reflects our commitment to facilitating innovation in financial services, while ensuring appropriate regulation that promotes good consumer outcomes.

Implementing regulatory change

Last year we saw growth in a subset of FinTech known as RegTech. RegTech offers technological solutions to address new and existing regulatory requirements. It focuses on the delivery of regulatory requirements more efficiently and effectively than existing capabilities.

Implementing changes to your business operations to comply with new, complex regulation can present a number of challenges. For example:

  • regulatory deadlines can require system changes or new system builds
  • new system development will need to fit in with your existing or legacy systems, and
  • new regulatory requirements may require your business to retain and make sense of large volumes of data from different departments.

We understand that regulatory changes and system development can transform the structure or nature of regulatory compliance within your business. Many businesses look to technology to help them manage risk when implementing regulatory reform. RegTech can assist your business to manage these changes at a lower cost through the:

  • collection of standardised compliance data in real time
  • analysis of large data sets for compliance risk and monitoring, and
  • automatic generation of reports.

Technology can be used to automate processes, reduce operational risk and deepen insights. It can also promote efficient and effective information sharing with ASIC.

What to look out for

If your business uses technology to meet new regulatory requirements, there are a number of questions you should ask to make sure you are creating a culture of compliance. For example:

  • Has introducing a new system or process   affected your governance and reporting arrangements, or the effectiveness of   your supervisory arrangements?
  • Have the new systems or processes created new   or different conduct incentives?
  • Will any of these changes in incentives create   new issues or risks that need to be monitored?

ASIC’s future focus

The increased use of technology to capture, store and analyse data also increases the risk of misuse, fraud and malicious cyber activities. To deal with this risk, we need to stay ahead of innovations in financial services.

Last year we opened up our Innovation Hub to RegTech entities. The Hub provides informal assistance to the RegTech community and engages in events, meetups and discussions with international regulators.

To be effective, RegTech needs to strike the right balance between innovation and risk to fair and efficient markets. Put simply, innovation needs to:

  • promote a better outcome for investors and financial consumers
  • raise standards of risk management and compliance, and
  • promote information sharing with ASIC.

To inform our focus on RegTech for 2017, we hosted a roundtable in early February to hear industry views on RegTech development in financial services. Going forward, we want to explore the opportunities and understand the barriers to the RegTech sector, including what role we can play to support innovation without compromising the integrity of markets. For more information about upcoming events visit our Innovation Hub.

 

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Last updated: 10/08/2021 11:27